(Wang 2012) The investor bulletin reminded investors that investing in companies with reverse mergers can be highly risky as there can be overestimations on revenues and other manipulations on key accounting figures in the financial statements of these firms. (Wang 2012) When they conduct the reverse mergers, they tend to use the small-sized US firms for auditing, and some of them are not qualified and experienced to audit for firms for acquisitions. (Wang 2012) In that case, there is no guarantee that the financial information they provide are truly and fairly presented in accordance with US regulations. .
In response to the above circumstance, it is now required for reverse merger companies to only have the opportunities to list on the NYSE and NASDAQ during a pre-specified seasoning period. (Cosnita-Langlais & Jean-Philippe 2013, p. 36) The length of the seasoning period varies across different stock exchanges. It can range from either half a year or one year or even longer. Further, the financial reports of the private companies have to be audited by accounting firms with qualifications to ensure its objectivity and reliability. Apart from these two requirements, it is up to the stock exchanges to decide the minimum share price that has to be met within the seasoning period. For most of the cases, NYSE and NASDAQ would require the minimum share price to be at least $4 per share for the entire seasoning period and 60 trading days prior to it. (Cosnita-Langlais & Jean-Philippe 2013, p. 36) In fact, the requirements of seasoning period are used to provide auditing firms with sufficient time to check whether there are manipulations on the key accounting figures. The auditing process must be strictly in accordance with the standards issued by Public Company Accounting Oversight Board. Besides, the private company itself also has more time to disclose all the necessary information to potential investors, such as the weaknesses in its internal control.